The Appraisal Contingency 

 August 4, 2021

By  Lora Keller

Need An Appraisal For A Property In Southwest Florida? Call (941) 743-3700

Looking to buy a home? Maybe you have found a home that is just perfect. If you are ready to have an appraisal done on the home, there are a few things that you should consider first. 

Let’s talk about how an appraisal can affect purchasing a home and what you can do to prepare for it. It’s called the appraisal contingency, and it can help you out of a frustrating situation.

To better explain all of this, let’s first start with how an appraisal can affect your new home purchase. 

Lora Keller of RE Appraisals Appraising an Estate Home

How an Appraisal Can Affect Your Property Purchase

The easiest way to explain all of this is to start out with a common scenario. Let’s say you are looking to purchase a new home. You go to your mortgage lender and they preapprove you for a mortgage loan of $200,000. 

Perfect! Now you start looking around for a home. You finally find a perfect place that’s in the right neighborhood and it’s priced at a great deal. However, it’s right at the top of your budget at $206,000.

You put in an offer of $200,000 and the sellers take your offer. This is great news. It is the perfect place, checks off all of your boxes, and your children won’t have to switch schools. It really couldn’t be better. 

Then, your mortgage lender needs you to have the property appraised. No big deal. Until the appraisal report comes back. The home is actually worth more than what the seller thought, being appraised at $220,000. 

So, unfortunately, you need to pull your offer. Thank goodness you had an appraisal contingency written up in your purchase offer. 

How exactly does that protect you in this situation?

How an Appraisal Contingency Protects You

Now, even with how unfortunate needing to back out of your contract is, it’s important that you have the option to do so. That is where your contingency comes in. 

A contingency is basically a backup plan for you if something doesn’t go the way you intend it to. Such as the home being appraised for more or for less than expected. When you first put together the purchase contract for a property there are all sorts of contingencies that you can prepare for. And that doesn’t just protect the buyer. The seller may also add contingencies to the contract as well. 

Some of the common home purchase contingencies are:

The Inspection Contingency

A lot of home buyers decide to have inspections carried out on a property before finalizing their purchase. It’s understandable that a buyer would want to do their due diligence when making such a large purchase and have the property looked over by a professional.

Not that the seller is trying to hide anything or swindle anyone. There are plenty of times in which a seller isn’t aware of a problem with the roof, electrical, plumbing, HVAC, or even the foundation. 

That is why many home purchase agreements have an inspection contingency. This helps to protect the buyer if something unexpected is found during an inspection of the home. Then you can go back to the negotiation table and try to figure out a deal. 

If no deal can be struck, then you can walk away from the contract. 

The Insurance Contingency

The insurance contingency is another common piece added into home purchase contracts. It doesn’t happen often, however, there are cases in which a buyer trying to get home insurance for a new property is denied because of the location the new home is in. 

To help protect their investment buyers need homeowners insurance. If they can’t get that, it is understandable why they would want to look elsewhere. 

That is why an insurance contingency may be thrown in, especially in areas that are at higher risk for natural disasters. 

The Financial Contingency

Another very common contingency plan is all about finance. When you go to your mortgage lender and get preapproved for a loan, that is not a guarantee that you will be approved for that loan amount. 

Plenty of things might change from the time of your preapproval to when you actually apply for your mortgage loan. Or even if everything stays the same, you still might not be approved for the full amount you previously thought. 

If your mortgage lender preapproved you for $165,000 but you find out that your actual loan will only approve you for $150,000 what do you do? You already put in an offer on a home for $165,000 and have entered into a contract with the sellers.

That is why the financial contingency is common and very important to include in your purchase agreement. 

Port Charlotte Appraisal Vs. Appraisal Review

The Appraisal Contingency

Last but not least, we have the appraisal contingency. This is another very common contingency plan that you will see in many home purchase agreements. 

Like we spoke of before, the appraisal contingency is another way for you to protect yourself from getting locked into the contract even if the home or property is not appraised for the price you expected. 

These are not the only contingencies that you can write up into your contract. There are contingencies for almost everything. These examples are just a few of the most common ones that are used in many home purchase contracts. 

A contingency is meant to protect both the buyer and the seller from getting stuck in a contract against their wishes. 

If you want to learn more about appraisals, the appraisal process, or just have some general questions, give us a call at (941) 743-3700. We would be more than happy to help you no matter what your situation might be.

Lora Keller


Lora Keller 

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